Harry Bookey, founder and chairman of BH Management & Equities, launched his real estate career with one lucky phone call and a $500,000 investment. On this episode of Masters of Real Estate, Bookey talks about how he grew the company from that first deal and the importance of good partners, like Joanna Zabriskie, president and CEO of BH Management & Equities. Zabriskie implemented data, technology, and operational systems that were integral in growing the firm into the eighth largest property management company in the US with more than 89,000 units under management and $1 billion in gross revenue. Together, they talk about building a successful apartment business and how the pandemic is shaping the future of the industry.

In this episode, we discuss:

  • The importance of building relationships, how they can lead to business opportunities, and the power of word-of-mouth. (5:11, 6:20)
  • Standing by partnerships through alternative offers. (10:04)
  • Being well capitalized has allowed BH to not only weather storms, including September 11th and the Great Financial Crisis, but has also helped to grow their business during times of market dislocation. (10:46-15:15)
  • How Zabriskie added value to the company in ways Harry could not. (18:30)
  • Data and tech has allowed BH to address operational shortcomings and negative trends in real time, and as a result, has been a huge game-changer for the growth of their business. (20:46-24:32)
  • Why adapting to the needs of employees and residents is crucial for the company's success. (28:29)
  • Approaching residents with empathy and flexibility has had a positive impact on rent collection percentages during the pandemic. (30:55)
  • Why additional government stimulus will play a key role in maintaining rent collections. (35:52)
  • Interest rates have been dropping dramatically, creating an opportunity to increase cash flow by refinancing properties. (40:24)
  • There is a lot of capital waiting on the sidelines to transact. (42:46)
  • Emerging trends in the property amenities. (43:21)
  • The challenges underwriting new deals during and after COVID. (46:32)


Rentcafé - a rent collection platform.

SightPlan - a property maintenance platform.

The CARES Act.

Current unemployment rates in the US.

News update on We Work co-working space.

Current mortgage rates in the US.

Interview Transcription:

(1:02) Justin Alanís: Hey, Harry. Welcome to the podcast. I wanted to start today's conversation by asking you, how did you get started in the industry? And how did you find your first deal?

(1:12) Harry Bookey: So I was a very unhappy lawyer. I had been in, when I graduated law school from the University of Wisconsin, I went and lived in Australia. My father got sick, and I came back to Iowa to be with my mother and so forth. I got married and ended up practicing law at a large law firm in Des Moines. About an 80 person law firm. I was very unhappy towards the end as it was just not, it just didn't fit me and my personality or what I wanted to do. I always wanted to be the client, so I kind of left on my own. I had a friend who had an office here in Des Moines, who had an adjunct room and he said I could use it, so that's where I went. It was a little 8 by 10 room max. And so I spent the first year, I had represented some real estate syndicators as a lawyer towards the end of my law career, and so I kind of knew a little bit about the apartment business as a result of those representations. So I spent the first year literally talking to people who I met in law practice. Looking for transactions to buy, talking to various clients who had money if they would invest with me and so forth. So as it turns out, the first year I did absolutely nothing. I was, couldn't find anything that looked interesting to me. Lo and behold, I got a call from a person who I'd done some business with as a lawyer. He said he had a friend in New Orleans, who had gone bankrupt in the 80's, had found a deal in Texas in the 90s, this was 1992, and that he didn't have any money to invest in it and was looking for equity for it. He told me that his background was like, his financial statement looks like a civil war battlefield. So anyway, the first time that I talked to this person in Texas, he sent me a pamphlet about the property and so forth and it looked very interesting. So for the first time in my life, I went to Dallas to San Antonio, Texas. I saw the deal. It was fantastic. It was such a low price and the government was coming off the savings and loan crisis. So we ended up cutting a deal with this person. I would provide all the equity. He had the management capability at the time. And so those were the days where you went to a closing, and this was the big break in my career. I went to the closing for this property called Brookfield, and we were buying it from a savings and loan who was selling it at a pretty strong discount. So I asked the president of the savings and loan that was at the closing. I asked him at about 4:30 in the afternoon, and I said, "would you like to go to dinner?". He said, "I would love to", he said "but I have to go to a closing". And I said, "well, how do you have to go to a closing at 4:30 in the afternoon?". I said, "which closing are you going to?". He said, "for this deal". And I said, "well, what do you mean this deal? I thought we were at the closing for it". He said, "no Harry, this is your closing". He said, "I'm going down to the federal building, and they're giving me the difference between what you're paying me and what my loan amount is". So I asked him, I said, "so you don't really care what the price is" and he looked at me with that kind of Texas look, and he said, "yes". So I said, "well, do you have any more of these deals?" and he said, "about 4". So I said, "well, maybe we could cut a deal for those remaining 4". And he said, "absolutely", because he really wasn't price sensitive, so that's kind of how I got started in the business. I went out and visited everybody I knew who had money and put a little offering memorandum together and was able to raise a few 100,000 dollars for each of these properties. And that's how I got started.

(5:30) Justin Alanís: That's really fascinating Harry. And how did you end up putting those deals together? How did you structure them?

(5:35) Harry Bookey: The first deal we did was Brookfield. It was 500,000 dollars of equity was all that was required. I raised 200,000 and we went to a bank and got and borrowed 300,000. So that's how we ended up with the 500,000. And I actually had my investors guarantee their pro rata share with, it's very kind of complicated for a small amount of money. So all these first 4 or 5 deals were probably in the category of 500,000 to a 1,000,000 dollars. And they were so successful early on that I kept, you know, kind of word of mouth amongst individuals. And so all of a sudden, I started getting individuals from California from Nashville or places like that, friends of friends of my initial investors who were almost all from Des Moines. And they would invest between 25,000 and 50,000 dollars and then guarantee a portion of the loan that we used to buy these properties.

(6:51) Justin Alanís: That's a really great story, Harry. So how did you end up getting into management?

(6:56) Harry Bookey: About 3 years later, I had probably 8 or 10, a couple of years later, I had probably 8 or 10 properties and I caught a manager stealing from us. It looked odd on the financial statements. We did a forensic investigation, so I had to make a choice either to hire another management company or get started myself. So that's the side of the business I really enjoy. Tt's getting out and seeing the properties and deciding how we can improve them and so forth. So I had a couple people I knew in the industry and they came over and we started BH management at the time.

(7:40) Justin Alanís: You talk a lot about how being a good partner and having integrity has led to some of your biggest moments. Is there a moment in particular that you can recall that changed the trajectory of your business?

(7:53) Harry Bookey: So you have to fast forward to about 1997, '98. And this was an another major pivotal moment in my career in this industry. I had a client, a partner actually, from Washington, DC, and he had French investors. And as it turns out, we had bought a property in Florida where he put up most of the money. My investors put up a small share of it, but we were partners on this deal in Florida and the French investors wanted to sell because the franc at the time was weak against the dollar. So I told my partner we wanted to stay in and he said, "well, why don't you talk to the people who are trying to buy it and just tell him you'll stay in and manage it for him and you guys can be partners with them". It just so happens that the group that was coming in was the probably the leading apartment real estate company in New York City and were very major, very well known. And so we tried to work a deal out with them, and they came out to Des Moines to visit me. And as it turns out, when they came in to see me, they told me that they really liked me. They wanted to do business with our firm, but that they had decided to do this deal with another group out of Florida, but it just so happens, we didn't have a contract with them yet. And I called my partner back, who, by the way, was in Greensboro, a great guy. And I told him the same story and he told me to go tell them to go F themselves and that he and I would try to raise 8 million dollars to buy the property, buy out the French investors. So we ended up doing that and that really taught me a lesson that you never, you always stand by your partner and that has been a very meaningful aspect of growth in my career. Because, you know, real estate is filled with a lot of people that can go back on their word or do and kind of mislead you sometimes. So keeping a relationship with my partner to me was a seminal point in my career.

(10:27) Justin Alanís: And speaking of seminal points of your career, you and I have spoken before about the various downturns and how they've impacted BH management. Do you mind talking for a second about what happened during the 911 crisis.

(10:42) Harry Bookey: That was a very challenging thing for people in the multifamily industry. The people forget at the time, what they call the CNBC market was built up at the time with a loan market. And the only way the lenders in that side could compete with Freddie and Fannie Mae was to give you more proceeds at higher rates. And most people in the industry took these kind of loans. So going into 911, most people had high leverage properties with very high interest rates. So when 911 happened and created all the uncertainty, nobody would get on an airplane, Disneyworld was a disaster, everything had slowed down dramatically and vacancy started going up from as low as 3 or 4 percent to 15 percent. And everybody was suffering and I would say close to 50 percent of the borrowers had to give back the properties or renegotiate their loan. And I had been doing very well and our properties sold better than most and I never turned a property back and so we made it through 911.

(12:08) Justin Alanís: How many units were you at? How many units were you at this point Harry?

(12:13) Harry Bookey: About 15 or 20,000 units, I would guess. Something along those lines.

(12:18) Justin Alanís: Okay. And that was ownership or all management?

(12:22) Harry Bookey: The way our deals are structured typically is we would put in, I have a, I was raising money from my what I call my legacy investors. Mostly individuals, people that knew me and had invested in me from the front deal, from the first transaction. And I would be raising anywhere from 5 to 15 million dollars a year. And typically I would go out and try to find a large institutional investor to put in the bulk of the money. We would put in anywhere from 10 to 15 percent of the equity requirement, high leverage transactions and we would pretty much be the way they were. So we had an equity interest in virtually everyone. I sourced most everyone. So we got what they called 'the promote'. If we provided our institutional equity partner, if they had hurdle returns they had to get and once we exceeded those, we were able to get a disproportionate share of the profits. And we had been very successful that way. But after 911 I think, to me, the most important thing is that really sorted out to people who knew what they were doing, who would stand by their loans. And we qualified on both those count, so our management company grew quite a bit. We think we got up to 30, 35, 40,000 apartments before the next catastrophe, which was the financial meltdown of 2008 and 9. There again, we were confronted with a situation where the occupancies were going down. Interest rates were still very high relative to today and, and it wasn't, it was a true, it was a real mess and properties were over leveraged. So once again, we had made so much money kind of going up the ladder in 2004, 5, 6 and 7, that we were pretty well capitalized. And once again, we stayed. We didn't turn anything back. And as a result, lenders were recommending us as somebody that would manage for them or be partners with them. And so our business grew pretty rapidly after 2008 2009. And so we were I think going up to 40,000, maybe to 45,000 apartments-ish.

(15:07) Justin Alanís: That's incredible, Harry, that you were able to enter the decade with the 911 crisis and overcome the vacancy issues that existed there. But then also exit the decade with the Great Financial Crisis and in between it sounds like you grew a tremendous amount. I know that a key part of your growth and overcoming those periods of time was not only your preparation, but also your financial backing and the partnerships that you do have in your business. I know that you now have one main financial partner, who you are close to, Stone Point Capital. Do you mind telling me a little bit about that relationship and how you met.

(15:44) Harry Bookey: We were looking at a property in Richmond, Virginia, and I really loved the property. And one of the people that had been a lender in 2008 and 9 was trying to go into our business and contacted me and he said I have equity but I don't have, I need to find a deal or 2. And I suggested this one in Richmond. So, as it turns out, his equity was a large private equity fund out of Greenwich, Connecticut called Stone Point Capital. And so they have a family office and they came down to look at the properties and liked it. We got along well with them and as it turns out that we bought the property with them. We operated it. We'd done very well and they approached me and wanted to be a part of our organization and they bought a minority interest in our management company. And have subsequently done 10, 15, 20 transactions together with them. And it gave us a lot of credibility. In that, they've been a tremendous partner and client.

(17:03) Justin Alanís: Yeah. I've been able to meet Stone Point through BH and they are indeed a great partner to have. Also, very high integrity. We always talk about these big hires. And I know that Joanna, who is gonna hop on here in a second was an important hire for you and an important partner for you. Tell me about that hire and what made Joanna so great. And what has she added to this business?

(17:24) Harry Bookey: She was actually a client of the firm's. They had put together a number of transactions and her owner had decided to go a different direction. And so she, we constantly communicated with each other and I said, "well, God, if you're thinking about, you would consider moving, why don't you fly on down?". So she came down to Des Moines. We hit it off very well and she kind of took over what I guess at the time was special projects just so we could see how the relationship would go in terms of, you know, the ability to work together. And it didn't take long before Joanna became the president of our company and she added all the things, all the elements that I did not have in terms of technology skills, people skills, managerial skills, and so forth. And since Joanna has been here, we've grown the company from, I think, 40 or 45,000 apartments that we operated at the time to close to 100,000 units today.

(18:37) Justin Alanís: I think that's a great answer and I think that's a great segway into introducing Joanna into the podcast. Joanna, thank you for being on the podcast today. Really appreciate it. Would love to dive into a little bit about what BH Management & Equities looks like today and your role within the organization.

(18:54) Joanna Zabriskie: My role- I'm President and CEO, which means my job is 100 percent support of the great senior team that we have at BH that enabled all the growth that Harry's talked about. We've got a fantastic culture. We're a pretty diverse company. We're 51 percent minority, 49 percent women across our over 300 properties and 2,300 employees. Our senior management team is 60 percent women and our growth has been nearly doubled in the past 5 years. So we've been able to do all kinds of great things that size enables us to do. We rolled out a babies-at-work program this year. We have a sabbatical program. So we're really taking a look at the whole employee and addressing the new Millennials and Gen Z-ers who are coming into our workforce and really demanding that we do more than just treat them as 8 to 5-ers. So it's been  an interesting run.

(20:00) Justin Alanís: Yeah, it sounds like it. And I know that you've focused over the last 5 years as well on building up your technology infrastructure and data infrastructure within the company. I'd love to hear a little bit about what you all have done on that front and how that plays into the type of moment that we're experiencing right now. Heading into another recession, seemingly another recession, who knows how long it'll last. Would love to hear your perspective on that front and what you guys have done.

(20:31) Joanna Zabriskie: Well, when I came into property management, Harry didn't tell me how hard it was. I was an asset manager by trade and I came over to property management and I couldn't get my arms around the data in the business. There was no real visibility other than in Yardi and all our data was across multiple different platforms. And this was back in 2014 and you and I met in a crowded hallway at NMHC and you were peddling something called Rentlytics, which was a series of dashboards that would, you know, solve all of our problems. Take us to the moon and back. And it was a great partnership, because we began to see visualization of our messy data. At the time, we'd never really fact checked or cleaned our data, or taking a look at it with any kind of granularity. And we moved the spreadsheets out of the system and brought in a more institutional way of thinking about and examining yesterday's data, not last month data, yesterday's data. And around that same time, the amount of capital that started to come into our industry, and in '15 and '16, became much more institutional and a lot larger in the dollar amounts that were chasing yield and multifamily provides yield. And we were at an interesting intersection. And I think the data and technology that we were putting into place made us better operators and allowed us to grow faster because nobody else was doing data the way we were. But 2 years ago, we brought that data management in house and we created our own server and pulled all the cloud based software providers data into our own database and visualized that out. And we do that on a nightly basis and put information into our investors hands, our property managers hands, our regional managers and mine. We're able to filter up or down I can see who was delinquent yesterday and I can get a trend over the past. Again, this has been an eye opening journey for us because we're a lot smarter and we're a lot more transparent. There's nothing that's hidden, the good, the bad, and the ugly, in our data. Because it's out there on a spreadsheet. We're able to find the exceptions quickly. I'm sorry. Not on a spreadsheet, in our dashboards. And we're able to find exceptions and address them operationally in real time and that's been a game changer.

(23:09) Justin Alanís: And it's really powerful. So going back to what Harry talked about before, which is relationships with partners, and being able to expose that data and information to your partner seems like a pretty big deal. Because it opens up that lens of transparency, where you as a property manager now have really nothing to hide from them. And you can have more of a dialogue associated with the actual performance of the asset. And the dialogue moves from one of which where your partner's asking you "what's happening with this asset" to a more nuanced dialogue and actually an elevated dialogue about, "hey, how can we improve on this element of the property?". How has that played out with your partners?

(23:11) Joanna Zabriskie: It's been a huge success because we're not creating a spreadsheet to find that error or that exception or that negative trend. It's out there. It's visualized. So we're starting the conversation at a much more advanced level. There's no calculation errors in the spreadsheet. It's all calculated the same way. Economic occupancy is consistent on all 300 properties. So we're able to make those decisions and have better conversations. And our regional managers and property managers aren't filling in asset manager spreadsheets. They're spending time managing the residents. They're spending time working with their team and able to be better operators because the data is handed to them on a platter.

(24:38) Justin Alanís: And this data has given you insights into other areas of opportunity across your portfolio. What other technologies have you put into place over the last 5 years that either the data led you to wanting to innovate in that area, or just areas of opportunity that you saw? What are some of those and how have they helped you as an organization?

(24:59) Joanna Zabriskie: I think it's all coalesced right now for us with COVID. And I will tell you that the technology investments and the data management practices that we've put into play over the past years is paying off big. We pushed to go paperless and that allowed us to collect rent, sign new leases, and virtually tour residence all without contact. In March with the onset of the pandemic, we were able to pivot operationally and remove contact points to keep our employees safe while still operating all of our properties. Our on-site teams had to be at the properties and remained in their offices because we're essential workers, but they were closed to outside traffic. Since mid March, we've collected 95 percent of our rent electronically, and we were at 86 percent pre COVID and 2 years ago, we were probably around 20 percent. We moved to virtual tours using FaceTime and YouTube to lease apartments. We developed a no contact move-in using checkpoint ID to verify resident identity and completed all of our leases electronically. We were able to communicate with all of the residents via email and text through our centralized Rentcafé platform. And our maintenance teams moved to essential work orders only wearing full PCE. But they kept in close contact with our residents because we had previously enrolled all of our properties on a mobile maintenance platform called SightPlan. All of that technology and that investment in technology enabled us, within a two week period in March, to pivot and remove contact with our residents, keep our employees safe, keep our residents safe, and still operate our businesses. Corporately we closed our offices in mid March. We moved all of our employees to their home offices, air quotes, and that's been a game changer for us. Previously, our CFO would have said, accountants could not work from home, absolutely not possible. Three months and three accounting month ends later we haven't missed a beat or a deadline. We have 82 accountants closing books of 315 properties and we haven't missed a deadline. We're evaluating the return to offices maybe shifts later this summer. We're in no rush to do so. We're acknowledging that many people do not have childcare over the summer or are fearful of returning before there's a vaccine. So I think that this is going to provide an opportunity for us to be operationally different going forward, both corporately as well as on-site. It's time that we have to lean in and create new workspaces both personally and professionally that are shaped holistically for our whole person, and not just the person who plugs in from 8 to 5. And that goes back to the culture of BH and what Harry started here. We value our people and in turn, they value the residents and paying it forward is a powerful thing.

(28:06) Justin Alanís: Absolutely, and in enabling them with technology, good data, good information and powerful systems is a is a huge part of that. Harry already mentioned the pay and so as you think about the pillars of what it takes to make happy employees, it sounds like BH is hitting all of those notes. And as you say, then those employees are then empowering your residents. That's an important, I think, distinction right now. How are you as a business thinking about the potential of COVID and the future of how this is all gonna play out both for the business as well as for the residents?

(28:49) Joanna Zabriskie: Well, I hope COVID is a temporary thing in our society and that we have a vaccine and we're able to reopen after that vaccine, semi back to normal. But like I said, I don't think we're going to go back to the way things were. Already our construction and design teams are completely reimagining what our club houses look like. Harry had already pushed us to put shared work environments in many of our club houses. And now we're going to hands free doors and faucets, more sanitization stations, more work from home, what do the interiors need to look like. So we're spending a lot of time thinking about the physical framework of our properties and our corporate offices to reflect that COVID-19 is going to come and go and we will have a vaccine at some point in time, but let's be ready for the next one. Let's acknowledge that this has changed our society in a number of different ways.

(29:56) Justin Alanís: Agreed 100 percent. It sounds like again, being prepared for either continuation of this for however long it lasts, and making those necessary adjustments. As you're not having to catch up on all the technology needs, you can start thinking in advanced ways about things like contactless doors. That's a nice place to be. How are you currently seeing it impacting the overall performance of your assets and what are you all projecting moving into the next few months over the summer? And how do you think the current unemployment CARES Act benefits, additional 600 dollars a week, is impacting what you're seeing from a performance based perspective?

(30:37) Joanna Zabriskie: Well, frankly, collections so far have been a surprise. We have collected 96 to 98 percent of our rent for the past 3 months. Currently on day 8 of June, we're at 91 percent of collections, and last month we were at 91 percent. The prior month we were at 86 percent on this day of the month. The granularity of our data collection allows us to update our collections 4 or 5 times a day and compare them to the past 3 months. I can filter down to a state or up to the whole portfolio. So we were able to see what regions, what state, and what properties were impacted by this crisis. And we've been pleasantly surprised that the empathetic approach that we took early on to creating payment plans to working with our residents, has shown that, while people may not pay on the first, they do pay when they get their stimulus check or their unemployment benefits. And so we've created payment plans that actually nobody has stuck to. And we've had residents come in, a vast amount of residents come in and prepay the next month's rent when they get a big check. And so our prepaid rent on our balance sheet has gone up. I've never seen it like this before. We've never seen such lumpy payments over the course of the month. Our April payment plan, 94 percent of those were paid. In May, our payment plans were less than half of the prior month, and 67 percent of those were paid. So that tells you a couple things to answer some of your 2nd and 3rd questions. The stimulus money and the unemployment, that 600 dollars of extra federal unemployment, have been crucial to paying rent. And rent has been prioritized. That's a heartening thing. Our residents have prioritized paying their rent and have done so however that 67 percent of payment plans rolling over into June tells you that savings were also used to fill that gap. That's what I'm guessing on that. That's the trend between 94 to 67 percent and that if we don't have a continuation of more stimulus after July 31, or a reset of the economy, I think we could get a lot worse than August and September. Harry's been really active in a lot of the political side so I'll let him jump in and talk to the last part of your question.

(33:16) Harry Bookey: Well, I really second Joanna's statement that if there isn't stimulus, continuation stimulus, I think that the multifamily industry could be impacted pretty severely if the economy hasn't gelled like we think it will. Because, you know, the government acted, I think, very quickly and by all the stimulus, the PPP, the unemployment for 600 dollars, all this has really helped stabilize the overall economy. In 911, in 2009, you didn't have this and that's why there were massive foreclosures. In our industry, there was no forbearance, which is what Freddie and Fannie have done now. So there were a lot of safeguards that had been built into these last 4 or 5 months. My concern is that you know, what happens if they aren't continued. And it doesn't look like the Republicans want this to continue that I guess they think it's over. And so I think that's a serious problem. You know, and Justin and 911, and in 2009, within 4 or 5 months, people really could see the end. They realized that things were starting to come back. There wasn't you know, the kind of dislocation that this virus has created and this is going to be a long term. So the government has really helped in the short term make the results a lot better than for multifamily operators. Much better in the short term than in 2008 and 2001 but long term, there's a lot of concern.

(35:26) Justin Alanís: Yeah. I'd agree with you there, Harry, especially with the latest jobs numbers that came out the other day where we actually had unemployment decreased by 2 percent and our president touting victory associated with that. And it makes me worry personally that all of a sudden we're going to go into a period where they don't think stimulus is needed anymore even with unemployment hovering at, a real unemployment, north of 15 percent. Now we're going to see what happens over the next few months. But as you say, the unemployment, the extra unemployment benefits expire July 31. And what could happen is that no additional stimulus is placed and the multifamily industry particularly, is going to be, I think, impacted severely if that doesn't happen. And not to mention, the industry will be impacted, but the residents specifically, I think, will be very impacted. And it could cause a real housing crisis across the United States that in a moment where we have the Black Lives movement, which is obviously really inspiring, and you see the police brutality across the country. But also you see how death rates are being impacted and especially by race in the black community is being more impacted than others through that lens. How do you think about then, legislation associated with this?

(36:52) Harry Bookey: Well, you know, my take on it is they're going to have to have ongoing stimulus programs to keep things stable. The reduction in unemployment rates is a little bit misleading. I was hearing this morning, you know, 3 or 4 percent of the people are, quote, employed but, you know, at a much lower level of work that they needed in terms of remuneration that they were before. There are a lot of people that have kind of dropped out of the workforce so that the employment rate doesn't count, include those. And that the real unemployment rate is much closer to 20 percent than it is to 14, 13.9. So I think that the government is going to have to continue with the safeguards. Or I think we're heading towards some really ongoing problems in our industry and others. I'm involved in a couple of restaurants and they got PPP and now they're at 50 percent. And it's hard to make money at 50 percent. And then the retail side of the real estate industry is going to be, you know, have some much greater ramifications than the housing side. Because it's like in our, in our little company alone, we would probably, if we were signing up a new lease today with, you know, with the kind of technology that has been used and the kind of program that Joanna and others have implemented that use the technology. I think you're going to find so much efficiency that the office environments are going to be dramatically different. Probably not need as much space. You're seeing that with We Work right now and others so I'm hopeful but not confident.

(39:04) Justin Alanís: Yeah, I feel the same way, Harry. And so as BH now, as an equity partner in a lot of these deals, how are you thinking about new velocity of deals and underwriting new deals? Are you guys even out in the market right now looking at new opportunities? Or have you guys bat down the hatches focusing on internal portfolio performance only?

(39:25) Harry Bookey: Well, I don't think there are many deals out there. The industry has pretty much been shut down in terms of, you know, deal flow, so to speak. It's not like 2001 or 2008, where, you know, the banks came crashing down, that's where you started all these special servicing. Millions of literally hundreds of thousands of properties in special servicing and all they needed. So there was a very, very, very active market post both of those recessions. Here, you know, the government has come in, they are subsidizing rent for massive amounts of people, which is important through unemployment or through PPP. So, what I'm saying is that and you have forbearance arrangements with banks with a loan and the other thing is that they've been helping, at least in our case. We've had 12, 15, 20 refinances. The values have maintained themselves reasonably well so we can get the appraisal. Interest rates are dramatically lower so on a lot of these properties that we're refinancing. We're dropping, you know, let's say on a 20 million dollar property, you're dropping 20 million dollar loan, you're dropping 300 basis points on 20 million dollars. That's 5 to 600,000 dollars of additional you know, cash flow, reduced debt so the conditions are a lot different but long term they could have the same ramifications as the prior...

(41:12) Joanna Zabriskie: What's interesting about this cycle is that, or not that we're to the other side of it to look back, but there's a lot more capital in the wings waiting for even a little bit of distress or waiting for the economy for jobs to pick up. This recession is a Main Street recession. The last one was a financial crisis. The banks are still lending. Fannie and Freddie are keeping liquidity in the marketplace through refinances right now but they're open for acquisitions if there's a good one and we have a lot of our capital partners calling and saying I'm sitting on this big fund. I'm sitting on lots of capital. Show us deals. We're ready to go when the economy starts up. And so we're hoping that 3rd or 4th quarter, that we're going to start seeing some some transactional, some transactions come across. I also don't think we have seen a big adjustment in value. There's not a lot of distress. As Harry said, we're seeing maybe 5 to 10 percent off of pre-COVID pricing as deals get quietly circulated. And that's not like the Great Financial Crisis where we saw values plummet.

(42:39) Justin Alanís: And so is this going to change your investment thesis? I know that you already do a lot of value add renovation work for both yourselves and your partners and you get additional yield through those value add opportunities. It seems that this particular crisis hitting Main Street is going to change residents buying behavior. They're going to start to think about maybe having less density. Moving out of the core, moving to suburban locations, moving to larger units with cheaper rent that maybe has a home office. Have you thought through that at all in terms of how you're going to change and mold your investment thesis on the other side of COVID or through this crisis?

(43:20) Joanna Zabriskie: I think there's a real flight to quality right now. People are talking about buying 2000 vintage assets instead of 1980s vintage and doing value add. And so we are seeing people less willing to put money into a value add thesis and wanting to do a lighter upgrade and have a preservation of capital. And that cash on cash return is very important. So I think that we're going to see less value add going forward. And more A, high B assets with a lighter touch needed on them.

(44:00) Harry Bookey: So I think a lot of it's going to hinge upon how the, you know, the new normal will be for the amenity packages that are being offered. For example, we in advance of this as early as January of this year, in actually last year, we started developing our club rooms into more kind of We Work style spaces. Because even prior to this, the trend was to spend more time at home or when you're at your apartment and so forth. So we've been kind of mimicking creating co-working spaces. And so that might make apartments more valuable, plus gyms and coffee shops, and that type of thing. And the leasing rooms that used to be there now, you know, like we're doing right now. We're doing most of our leasing virtually. So I think the industry will change quite a bit and will be a little bit more competitive. And there's been a lot of properties that are not going forward now because of COVID. And so the demand, you know, there might not be as much oversupply.

(45:33) Justin Alanís: Yeah. It'll be very interesting because as Joanna mentioned, there's a lot of capital sitting on the sidelines, and we've certainly seen that, waiting to pick up distressed assets. And so, you know, seeing all that money come off the sidelines, I think it'll be really interesting to see how also companies like yours start to underwrite these assets. During the Great Financial Recession, we had 6 quarters of rent declines on a year over year basis. It looks like now with collections, that seems to be a leading indicator of what new rents are going to be. And it looks like asking rents are now starting to trail down on a year over year basis, depending on the market that you're in, obviously. High COVID impacted areas seem to be impacted even further. Places like San Francisco, New York, LA are being heavily impacted. Have you thought through the underwriting parameters that you all will start underwriting and using and the assumptions that you're going to be using? As you start looking at deals around the country?

(46:32) Harry Bookey: Let me take a crack at that. Number one is the multifamily industry and in my judgment is sub market driven. It's very sub market driven. Right now, if you look at Seattle, which was one of the hottest markets in the world. You have to look at Microsoft. Is it going to go crazy upwards? Is Duane going to have you know, systemic issues going forward because of the lack of industry, travel and so forth? I mean, so I think so much of it depends on where you are, what you're going to do, and what the prognosis is for additional supply. And I think that in the cost of construction and so forth, and if the cost of construction goes down dramatically, which it may or may not. A lot of the materials were coming from China, so maybe they'll be harder to obtain, you know. Is pricing, is there going to be demand? So I think there's so much uncertainty in the industry going forward that it's going to be hard to underwrite deals, and they're going to have to be carefully analyzed in terms of where they're located, what kind of opportunities there are, what kind of industries are there in that specific area, what kind of schools are there because that's becoming very paramount. Now so what I'm saying is, geeze. It's kind of like somebody, I remember once Justin said,"why don't you buy in Chicago?" And I said, "well, south 59th street, or you know, Gold Coast?" It just depends on where you are not only in the sub market location, but also in the city and the industries involved and so forth and so on. So right now we're having a lot of trouble. We're looking, you know, like right now, we're underwriting a few deals in DC, because DC, the government. The government is going to have to play a major role and whatever. And so it seems the supply lines have been reduced. So Amazon is going in there and so forth. So maybe that might, depending on. So that's the place at least you would look in terms of supply. And the other thing is about apartments is that where you are in the market kind of self regulates itself in terms of cap rates. If you're in a hot market, high construction, blah, blah, blah, you know, cap rates seem to compress and if you're, so it does self regulate itself.

(46:37) Justin Alanís: Yeah. And I think all this, Harry, points to what Joanne and I were just talking about, which is staying in on the data. Understanding your sub markets, to your point, understanding how things are trending. Understanding how things are trading and being the first in on those markets when maybe cap rates still haven't compressed but yet there's opportunity, seems to be the way to go. And it all kind of points back to the technology data.

(49:46) Joanna Zabriskie: I think there is going to be a little bit of an adjustment here because we're collecting rent handsomely right now. I've been very pleased with that, but our other income line is going down. What we saw across our portfolio in April and May is that total income went down 5 percent. Rents were flat. Our renewals are higher than they ever have been because people don't want to move right now but all the late fees that we're not able to charge or the ancillary income. People are moving out of garages if they don't need them. Other incomes going down. Now we were able to through cost saving programs and reduction in RNN and lower turnover. Our NOI's were not impacted in April and May. In fact, in May our NOI across the board went up because of these cost saving programs. I think you're gonna see that deteriorate as the cost of doing business goes up. You have sanitation supplies, built up work order inventory that needs to be ordered for. So as we reopen and operations becomes more complicated with COVID, our margins will be deteriorating. And I think you'll see an adjustment in pricing as a result of that, in addition to, you know, the the non paying residents that are building up right now. Those residents will need to be dealt with and moved out. So we're actually as we're underwriting and taking a look at deals, and as we're looking at our own portfolio, in a revenue management sense, we're building in those non paying residents into our trend. And making sure that we're trying to compensate for that so we'll underwrite for that accordingly as well.

(51:38) Harry Bookey: One of the things that contributes impact to the market a little bit, is that in 2001, and 2008, after 3 or 4 months, if they can get out of their lease, they would go double up with their parents house or double up with their roommates, you know, that type of thing. Well, that's kind of out now as long as the COVID thing continues to influence, it continues to exist. People are very hesitant to double up in families and so forth. So I think that the, you know that the migration of residents out has been less this time than the last two so that has a positive impact.

(52:27) Joanna Zabriskie: You're exactly right, Harry. Because remember the last cycle those 1 bedrooms with a den. People moved into the den. Now people are working out of the den.

(52:38) Harry Bookey: Yeah, they need a place to work. They're not doubling up. They don't want to go back with their parents. Their parents are nervous about having them have friends over, you know. So it's just a lot easier to just stay where you're at. And that's, I think that's what's going on.

(52:57) Justin Alanis: It'll be interesting to see where everything flushes out at the end of this, but I certainly know that BH Management and BH Equities is in a great position. You guys have done a phenomenal job. I've seen it firsthand and I want to thank you both so much for taking the time. I think that this has been fantastic. Thank you so much.

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